Question 1

How is FD interest calculated in India?

Accepted Answer

Fixed Deposit (FD) interest is calculated using the compound interest formula: A = P(1 + r/n)^(n*t). Here, 'A' is the maturity amount, 'P' is the principal deposit, 'r' is the annual interest rate, 'n' is compounding frequency (quarterly by default), and 't' is tenure in years.

Question 2

What is the compounding frequency for bank FDs?

Accepted Answer

Most commercial banks in India calculate compound interest on a quarterly basis (4 times a year). However, you can also opt for monthly compounding, half-yearly compounding, or annual compounding. Monthly compounding is popular for regular interest payout schemes.

Question 3

Is FD interest taxable in India?

Accepted Answer

Yes, FD interest earned is fully taxable under the head 'Income from Other Sources' at your normal income tax slab rate. FDs do not have any tax exemption unless you invest in a 5-year Tax Saving FD which allows deduction under Section 80C.

Question 4

What is the difference between cumulative and non-cumulative FD?

Accepted Answer

In a Cumulative FD, interest compounds and is paid out only at maturity. This creates a larger corpus due to the power of compounding. In a Non-Cumulative FD, interest earned is paid out regularly (monthly or quarterly) as income, and the principal is returned at maturity.

Question 5

How does TDS apply on bank FD interest?

Accepted Answer

Banks deduct TDS (Tax Deducted at Source) at 10% if your annual FD interest income exceeds ₹40,000 (₹50,000 for senior citizens). If you do not provide your PAN, TDS is deducted at 20%. You can submit Form 15G or 15H to avoid TDS if your total income is tax-exempt.

Fixed Deposit (FD) Calculator

Estimated FD Balance Over Time

The Fixed Deposit Compound Interest Formula

Worked Example

Fixed Deposit (FD) Calculator

Estimated FD Balance Over Time

The Fixed Deposit Compound Interest Formula

Worked Example

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